The Indian rupee on Tuesday weakened by another 18 paise to settle at 71.78 against the U.S. dollar as investors fretted over higher crude oil prices.
Elevated crude oil prices have emerged as a major fear for India — the world’s third largest oil importer — in the form of fiscal slippage and inflationary pressure.
At the Interbank Foreign Exchange, the rupee opened at 71.83 then lost further ground and fell to an intra-day low of 71.98 against the U.S. dollar.
The local unit finally settled for the day at 71.78, down 18 paise over its previous closing.
The Indian rupee on Monday had plunged by 68 paise to 71.60 against the U.S. dollar amid concerns over soaring crude prices following drone attacks on Saudi Arabia’s oil facilities.
“Indian currency spot surged to 71.98, Brent crude prices moved to $69 and 10-year yield was at 6.72. All these factors are dampening the economy and will be difficult to tackle in the short term,” said Shrikant S. Chouhan, Senior Vice-President, Equity Technical Research, Kotak Securities.
Crude oil benchmark, Brent Futures, surged by almost 20% to $71.95 per barrel (intra-day) on Monday after twin drone attacks on Saturday wiped out more than half of Saudi Arabia’s crude supply.
However, Brent Futures on Tuesday saw some moderation and was trading at $68.07 per barrel, down 1.38% over the previous close.
“Given India’s dependence on imported oil, any spike in crude oil prices would impact India’s oil import bill and trade deficit. Every dollar increase in the price of oil raises the import bill by around approx. $1.5 billion on an annual basis,” said Arun Thukral, MD and CEO, Axis Securities.
Besides, heavy selling in domestic equity market and sustained foreign fund outflows also weighed on the domestic currency, forex traders said.
The 30-share index ended 642.22 points, or 1.73%, lower at 36,481.09. The broader NSE Nifty too settled 185.90 points, or 1.69%, down at 10,817.60.
Moreover, foreign investors continued with their equity selling spree in the Indian market. Foreign institutional investors (FIIs) sold equities worth ₹808.29 crore on Tuesday, exchange data showed.
The 10-year government bond yield was at 6.73% on Tuesday.
Market participants were also on edge awaiting cues from the upcoming trade talks between China and the U.S. as well as a much-anticipated policy meeting of the Federal Reserve, scheduled to begin later in the day.
Meanwhile, on the global front, a Chinese Vice Finance Minister will visit the United States on Wednesday to lay the groundwork for trade talks next month.
The official Xinhua news agency said Vice Finance Minister Liao Min will lead a delegation visiting the United States on Wednesday to “pave the way” for higher level talks.
The dollar index, which gauges the greenback’s strength against a basket of six currencies, rose by 0.01% to 98.61.
The Financial Benchmark India Private Ltd. (FBIL) set the reference rate for the rupee/dollar at 71.5362 and for rupee/euro at 79.1934. The reference rate for rupee/British pound was fixed at 89.1393 and for rupee/100 Japanese yen at 66.34.
